Wednesday, January 17, 2018

Money Can’t Buy China Love – but Influence, Apparently

China under Xi Jinping is deeply concerned with its global status and standing and aims to regain its deserved place on the global stage. This has dramatic consequences not only for China but for the rest of the world.

One of the most important developments with regards to China has been the bold departure from the foreign policy dictum to keep a low profile. While the country, until recently, was mainly concerned with domestic issues and development, foreign policy under Xi Jinping has become more assertive and confident. China is reclaiming territory beyond its shore, pressures neighbors and deploys military assets to disputed regions.

The forthcoming China country report ofBertelsmann Stiftung’s Transformation Index (BTI) summarizes the territorial disputes: “China and Japan have increased their military presence in the region, heightening the risk of military conflict. Trilateral talks between China, Japan and Korea have acknowledged the need to cool down the conflict, but have fallen short of producing a solution. In the South China Sea, China continued its construction of artificial islands in the Spratly archipelago, encroaching on territory claimed by the Philippines and Vietnam.”

Next to these confrontational politics, China also deploys softer and more indirect means of influence. It uses geoeconomic instruments to offer generous loans and investments, creates new organizations such as the Asian Infrastructure Investment Bank to oppose western dominance in the World Bank and International Monetary Fund and develops economic strategies with a global reach such as the the so-called Belt and Road initiative, a development strategy proposed by Xi Jinping that focuses on connectivity and cooperation between Eurasian countries and China.

By combining inducements with intimidation, Xi’s China has demonstrated the benefits of cooperating with China as well as the economic and military costs of opposing it, especially on issues important to Beijing.

Foreign policy serves domestic politics

In China all foreign policy pursuits are strongly embedded in the country’s domestic core interests – national sovereignty, territorial integrity, and domestic development. Xi Jinping’s vision of building a moderately prosperous society and realizing national rejuvenation has been cemented in the term “Chinese Dream”. One of the most fundamental aspects here is domestic development, which essentially means economic development.

As the BTI 2018 reports, the Chinese leadership is currently struggling against the challenges of economic slowdown, exemplified by GDP growth falling below 7 percent and national debt increasing so quickly that observers warn of an impending crisis. Foreign policy, then, plays an important role to secure economic development at home, as it should help create a peaceful environment, which makes it possible for China’s economy to prosper.

Thus, despite all assertiveness and bullish behavior, China clearly depends on its neighboring region for domestic prosperity. Not only should other countries buy Chinese products, but China also is reliant on sea routes, which then-President Hu Jintao in 2003 called “The Malacca Dilemma,”highlighting the fact that most of China’s oil imports have to pass through the Strait of Malacca en-route from the Middle East and Africa.

The domestic dimension of the Belt and Road initiative

A perfect example for the interplay between foreign and domestic politics is “The Silk Road Economic Belt and the 21st-century Maritime Silk Road”, better known as the “Belt and Road” initiative. It consists of the land-based belt that refers to what was historically called the Silk Road, stretching from China through Central Asia, and an oceangoing maritime road, which aims to connect South East Asia with the Middle East, Europe and the east coast of Africa.

The strategy underlines China’s push to take a larger role in global affairs with a China-centered trading network. While cultural and educational exchanges along the Silk Road are one component, the focus is mainly on infrastructure investment, construction materials, railway and highway, automobile, real estate, power grid, and iron and steel.

Officially, China highlights the “win-win” dimension of its engagement, but taking into account the fact that China is experiencing a substantial slowdown and will not be able to regain the high rates of growth that characterized the last several decades, there seems to be a much more self-serving dimension as well.

On the one hand, developing infrastructural ties with its neighboring countries may reduce physical and regulatory barriers to trade by aligning standards. On the other China uses the Belt and Road initiative to address excess capacity in its industrial sectors, in the hopes that whole production facilities may eventually be migrated out of China into countries along the Silk Road. As Chinese companies have built almost every possible port, road, or railway within China, in order to keep the business running, those companies are lucky to do the same in underdeveloped countries in Eurasia and Africa.

How China buys influence

China is targeting almost every corner of the world with its economic outreach. Chinese investments in Europe, for example, have surged dramatically in recent years. Foreign direct investment (FDI) in the European Union traced back to mainland China hit a record EUR 35 billion in 2016, compared with only EUR 1.6 billion in 2010.

One prime example for China’s growing economic and political clout is Greece. Through its port of Piraeus, the country is linked to China’s maritime Silk Road. The Chinese state-owned company COSCO has been operating the Greek container port since 2008 and in 2016 it acquired 67 percentof its shares. The agreement can be described in the context of China’s “win-win” approach: It may help to stimulate the Greek economy and provides China an entry point into Europe as it helps connecting China’s maritime trade routes crossing Southeast Asia and running along the shores of Africa with the cities of Europe.

The whole initiative, however, is not just about business, but apparently also about politics. In June 2017, Greece vetoed a European Union condemnation of China’s human rights record at the UN and this stunning decision was directly attributed to huge Chinese investments in the economically depressed country.

As The Guardian reported, shortly before the UN veto the Greek port “teamed up with the port of Shanghai in a deal that will see goods and container shipping between the two soar. Beijing has also acquired a 51 percent share of Greece’s public power corporation’s grid operator.”

While there is, of course, no way to proof the linkage between China’s economic help and Greece’s political concession, it seems reasonable to put one and one together to conclude that it is, apparently, possible to buy influence. It is, however, a completely different story, whether such initiatives also help China to change its global image.

Falk Hartigis a sinologist and journalist working on contemporary China. He is currently a postdoctoral researcher at Goethe University Frankfurt